Chaining ourselves to the third way

Chaining ourselves to the third way

by digby

Leave it to Third Way to characterize screwing the middle class and the poor for decades to come as “moderate.” But that’s what they call their proposed plan for the Supercommittee. And I’d guess that if the Supercommittee manages to come up with a deal, it will look something like this:

“A grand bargain is ideal but a distraction. … With that falling apart, the whole supercommittee could fall apart,” says Jim Kessler, Third Way’s vice president for policy. The group’s “break-glass” plan contains $426 billion in new revenue — compared with the $1 trillion that Democrats are currently demanding — without raising marginal tax rates, in hopes of appeasing Republicans. It also contains $556 billion in cuts to mandatory spending, but with relatively minimal reductions to entitlement benefits, in hopes of satisfying Democrats. It also has about $420 billion in defense cuts — a substantial figure, but less than the $600 billion in cuts that would be triggered if the supercommittee fails. Finally, it leaves some of the most contentious issues — like the future of the Bush tax cuts and major changes to Medicare and Medicaid — for later. “This is not our ideal plan … but there are a limited amount of moving pieces that can be used,” Kessler explains. He casts the plan as an alternative between “go big” and “don’t do anything at all,” saying that it’s a false dichotomy that excludes a more moderate compromise.

There are some parts of the Third Way plan that supercommittee Democrats and Republicans have already put on the table: It lowers the mortgage-interest deduction, which Republicans have floated. It uses chained-CPI for calculating Social Security benefits and raises Medicare premiums for wealthier beneficiaries, which both parties have considered. A full outline of the entire plan is available here.

But there are potential dealbreakers throughout, particularly in light of the GOP’s aversion to tax increases. The proposal eliminates an estate-tax exemption that builds on the Bush tax cuts, for instance. And it raises some $50 billion in revenue through eliminating subsidies to ethanol, coal, oil and other energy industries. Although the Third Way lifted many of those energy revenues from Coburn’s own plan, the Oklahoma Republican is still something of a fiscal outlier within his own party. When Coburn tried to eliminate ethanol subsidies this year, it sparked a fierce backlash from other Republicans.

When you look at the actual plan you see that the big ticket item is the chained CPI change, which raises money by “changing” the tax brackets on everyone, but mostly by cutting Social Security. The largest single line item is that one. But they also raise a lot of money by cutting Medicare and Medicaid (I don’t know why that article says they aren’t included) and lowering the mortgage interest deduction, which seems an odd choice at a time when the dead housing market is still a huge drag on the economy. They also do a major hit on federal workers by forcing them to pay in much more for their pensions (also known as a pay cut.)

The revenue side for business is all chump change. The energy sector which has reported record earnings in the past couple of years is hit with about 50 million in subsidy cuts (a rounding error to them.) The rest of the “loophole” eliminations, like the subsidy for corporate jets, comes to just 14 million.

The defense cuts are good, but impossible to achieve. They offer up the usual obsolete weapons systems that anybody with a brain wants to cut. Maybe they’ll happen this time, but these are sacred welfare programs for white males and are, therefore, usually untouchable. They do include a big savings for the troop pullouts from Iraq and Afghanistan and a 50 billion in savings for “outsourcing” military work to civilians under the pretense that this will save money.

The achievable big cuts and and the big revenue in this plan comes from the chained CPI, a sneaky, underhanded accounting change that will result in average people bearing the brunt of this austerity while the political leadership in both parties can strut around patting themselves on the back for getting “shared sacrifice” and making the “tough choices”. I think this is the one thing that the Republicans and the Democrats both want.

Here’s the thing. We shouldn’t even be talking about this until unemployment is under control. Here’s Robert Reich:

That automatic trigger seems likelier by the day because at this point the odds of an agreement are roughly zero.

Here’s the truly insane thing: The triggered cuts start in 2013, a little over a year from now.

Yet no one in their right mind believes unemployment will be lower than 8 percent by then.

The cuts will come on top of the expiration of extended unemployment benefits, the end of a payroll tax cut, and continuing reductions in state and local budgets — all when American consumers (whose spending is 70 percent of the economy) will still be reeling from declining jobs and wages and plunging home prices. Even if Europe’s debt crisis doesn’t by then threaten a global financial meltdown, this rush toward austerity couldn’t come at a worse time.

In other words, what will really be triggered is a deeper recession and higher unemployment.

At this point, I think you have to ask yourself, cui bono? Michele Bachmann may have let the cat out of the bag last night:

Michele Bachmann: … The Great Society has not worked, and it’s put us into the modern welfare state. If you look at China, they don’t have food stamps. If you look at China, they’re in a very different situ– they save for their own retirement security. They don’t have to pay FDC. They don’t have the modern welfare state. And China’s growing. And so what I would do is look at the programs that LBJ gave us with The Great Society, and they’d be gone.